The history of DAI
Dai is the first decentralized stablecoin issued on Ethereum. At the end of 2017, compared with other stablecoins, DAI is the most unique and decentralized one. Banking facilities (ie DeFi) play an important role.
The following is a list of stablecoins in the early years. Before the USDT became popular, the pioneers of digital currencies designed various stablecoin prototypes:
-A brief history of Stablecoins, BITMEX Research
For now, DAI is one of the most robust and advanced stablecoin systems on the market. The above conclusion is verified not only from its design, but also from its market share.
Operating mechanism
Excerpt of a description about DAI design, I believe that some students will feel dizzy after reading:
"Anyone who wants to buy Dai must deposit ETH in a smart contract called the Debt Mortgage Bond Position (CDP). CDP issues Dai tokens based on the dollar value of the collateral. The exchange rate system for pegging to the dollar is through The incentive mechanism of the MakerDAO system is maintained."
In simple terms, DAI is a contract-like design: it does not forcibly guarantee and 1:1 lock of USD, but the incentive mechanism drives arbitrage players to stabilize the price of DAI at 1USD.
The reason why DAI adopted this design is because it is inseparable from decentralization. In a decentralized system, there is no centralized facility like a bank, and no institution can accept stablecoins. So designing a contract based on ETH, through incentives to ensure that its value is anchored in US dollars, is basically close to the perpetual contract of ETHUSD. Of course, the latter still needs to be completed in a centralized exchange, and DAI can be accepted directly on the ETH chain, open and transparent.
DAI vs. USDT
The difference is very simple. USDT promises this: for every USDT you have on the market, I correspond to depositing a USD in the bank. However, in which banks are these USDs going to run or freeze, it's hard to say. The DAI promises this: every DAI on the market is issued as a guarantee by collateralizing ETH (or other ERC20 assets), and the collateral is transparent and available on the chain, without worrying about running. . However, these coins themselves are very volatile, and when prices fluctuate greatly, there may be situations where margins need to be supplemented (or even default).
Another difference is the number of trading pairs. Most spot exchanges use USDT as the main trading pair, and very few use DAI. This makes DAI's liquidity a very poor market share (much less than 1%).
Source: CoinMarketCap
Active trading pairs will attract more arbitrage players to join, and the competition of arbitrage players will bring better depth, thus forming a good liquidity ecology. At present, DAI still has a long way to go.
Another pitfall is the name. At first glance, the name DAI does not look like a stable currency. For example, USDT, BUSD and the like, it looks very intuitive, making it easier for people to think of it as USD.
Risks of using DAI
We believe that the main risk comes from the CDP contract mechanism, which requires relatively stable collateral. When the price of ETH and ERC20 series tokens as collateral changes drastically, the stability of DAI will be significantly affected.
Is DAI really a "stable" coin? cryptofans.ru.skew.com
As shown in the figure, under extreme market conditions, the stability of DAI is far less than other stable coins. The following figure shows the relationship between the price stability of DAI and the sharp fluctuations of ETH:
ETH/USDT & Dai/USDT Price Chart, Source: CoinMetric
On March 12th, the calculated price of DAI deviated by more than 5%, and it did not maintain stability for ten days after that.
Risk
From a trader's perspective, the most liquid stable currency is the one with the least risk. Because when the Black Swan incident occurs, you can have enough mobility to cover the retreat. Of course, it is also important to understand under what circumstances the stablecoin you hold will "lapse". For example, USDT may be unstable when it is caught in a lawsuit and is run; DAI is when the price of ETH fluctuates sharply. , Will "fail". Traders can adjust their positions in stable currencies according to their own judgment on the market. In the future, DAI may still not be able to achieve the stability we expected, but a "decentralized" system can always stand up when the "centralized" system fails. DAI is still the best choice for those who believe in "decentralized finance". In the future, more people will participate in the construction of the DeFi ecosystem, and DAI will also take this opportunity to grow .
